Dan Haar: New State Budget Deal Near, With Business Tax Breaks; Debates Over Social Services, Personnel Cuts

House of Representatives Speaker Brendan Sharkey said that Malloy had received the budget within one hour of a press conference. (Michael McAndrews)

Lawmakers and Gov. Dannel P. Malloy are close to a deal to take $350 million out of the state's $20 billion spending plan for this fiscal year, a package that will include general cuts in the bureaucracy, maybe a few budget tricks and declining state employee rolls.

Malloy is meeting Wednesday afternoon with legislative leaders from both parties, with the hope of calling rank-and-file lawmakers to the Capitol by the middle of next week.

Advertisement

Hospital executives, already challenging the rising taxes and Medicaid cuts foisted by Malloy and lawmakers in June, are likely to remain unhappy with the outcome, although some legislative leaders are trying to restore Malloy's September cuts to hospital funding, totaling about $60 million.

The deal will include adjustments to corporate taxes that lead to about $10 million in cuts for companies — including exemptions for personal income taxes for people in the state less than 15 days, expanded enterprise zone benefits and a cap on the added liability from mandatory unitary reporting for large corporations.

We will not see a retirement incentive plan, which would have saved $140 million this year and next year by attracting 1,800 takers, but would have added huge cost to the state's pension system in the coming years.

The cuts in state employee payrolls will come from attrition – perhaps, Malloy said, with a few layoffs, but not many.

And as of Wednesday, the legislative leaders on both sides were still hoping to undo some or all of Malloy's cuts to social services and mental health, which the governor instituted in September as part of a $103 million cutback.

That's the picture that is emerging from the talks, based on comments on the record and from sources.

Gray, but getting clearer. Even without the retirement incentives, all groups in the talks have proposals that add up to the target, Fasano said. And Themis Klarides, the House Republican leader, added that other than eliminating the retirement incentives, there's nothing new and big that hasn't already been floated publicly.

The reason for these mid-season emergency meetings is a hole in the current-year budget, which Malloy's budget office and Comptroller Kevin Lembo peg at about $120 million, and the legislature's nonpartisan Office of Fiscal Analysis pegs at $254 million. That office projects a shortfall in the 2016-17 budget at $552 million.

A debate is unfolding about use of the so-called rainy day fund to plug part of the hole — as a way of restoring some of the social service cuts.

Also, many state employees who retire or leave their jobs won't be replaced for the foreseeable future. But paring the state workforce a fine balance, Malloy said, because the budget is already tight when it comes to personnel – especially with "24-hour" departments so short-staffed that overtime costs are rising.

"No one wants to pay overtime, but no one wants to pay the benefit costs" that come from hiring, he said.

Layoffs won't be widespread, Malloy said, but he added, "I wouldn't say for certain that some of the proposals might not lead to layoffs."

Advertisement

The talks could lead to tricks such as raiding special funds or moving spending items outside of the regular budget, although any new borrowing to pay those operations costs would fall under sharp criticism.

In response to a question from Keith Phaneuf of the Connecticut Mirror about whether all the savings are "real," Malloy said that "you being a purist" might not see all of the upcoming budget agreement that way.

The Connecticut Hospital Association certainly doesn't see the budget as legitimate. On Monday, the group filed appeals with two state agencies over the "provider tax" of hundreds of millions of dollars on hospitals, a move that's viewed as a precursor to a lawsuit. Malloy already this year tightened Medicaid payments to hospitals beyond the budget passed in June, and he showed no sign of a letup Tuesday.

"The hospitals wanted to be able to dictate to the people of Connecticut that 'You will pay us a lot more money,'" Malloy said Tuesday. "I don't think that the taxpayers of Connecticut are going to pay $500 million to $1 billion in additional taxes to give money to people who are making $916 million."

That last figure was a reference to one measure of hospital corporate surpluses in fiscal 2014 – a figure the hospital association says is deceptive because all capital improvements and medical equipment purchases must come from the surpluses, and because some of the gains were one-time events.

The association has been advertising heavily, leading Looney to say, "It just shows the people of Connecticut that they have a lot of money to get their message out."

As always, the closed-door talks will leave little room for rank-and-file legislators to make changes, but at least in this mid-fiscal-year emergency, Republicans are at the table — unlike last spring, when they were locked out. All this productive compromise should persuade Malloy to invite the GOP more often.